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Things You Should Know Before You Buy Your first Home
The process of buying a home is exciting and something you will look forward to. When you embark on the process of buying your first home, you may find that it is not a simple task of choosing a home and paying a seller like buying a product in a store. There are many procedures that will make you feel that it is a daunting task. Getting money to finance your home is not easy. Different states have different rules about buying a home. You will be presented with many real estate phrases like mortgages, interest rates, down payments and approvals that may make you feel overwhelmed. The whole process may seem like many bits of a jigsaw puzzle that you will need to put together. If you research the process make a sensible plan and careful choices, you can wade through the maze of home-buying procedures easily without too much stress.
Your first step to buy a home is research. You should start researching the type of home you want as soon as you plan on buying a home. Your sources for research include the real estate listings in the newspapers, real estate magazines and online at real estate websites. You can check the type of neighborhoods and the type of houses you want to buy. You can also find the prices of these houses that will help you make a budget for buying your future home. Once you zero in on the neighborhood where you want a home, you should go there at different times during the week and during the weekend, to check if you feel comfortable. You should check if there are amenities that suit your needs in the neighborhood. Check if the neighborhood is prone to fires or other natural disasters.
Make a Budget
Before determining the size of the home that you want to buy determine the price you can pay. Experts believe that you should not pay more than three times your annual income for a home. The standard rule used to find out the amount you can afford to buy a house is called the 28/36 percent rule. The basis of the rule is that your maximum household expenses should not be more than 28 percent of your gross monthly income and your total household debt should not be more than 36 percent of your gross monthly income. If you find that you need to stretch beyond what you can afford to buy a home, it makes sense to wait till you earn enough to buy a home or you will spend years paying a large debt with compounded interest.
Pre-qualification and Pre-approval of your mortgage
Get a pre-qualification done for your mortgage from reputed lenders. Pre-qualification is an informal assessment of whether you can get a mortgage loan to finance your home. You can enter an online form online with your financial information and the lender will evaluate the information and inform you whether you qualify for a loan and the amount. You can start looking for homes within this price range. Pre-qualification does not necessarily mean that when you apply for a loan, it will be automatically approved. The pre-qualification form will not ask for your credit report. Your next step is to get pre-approved for a loan by providing financial statements to lenders. It is at this time that the lender institution will ask for your credit score. Pre-approval is a formal and conditional commitment by the lender to grant you a mortgage loan.
For a smooth and comfortable home buying experience, you need to get professional help. Real Estate agents are professionals who are qualified and adept in helping you get through the home buying process without stress. After your mortgage is pre-approved. You need to find a reliable real estate agent. They will have a list of houses that suit your needs and budget. Real Estate agents will be in a position to tell you about the neighborhood. Sellers pay a commission to real estate agents and buyers are not required to pay them. You should look for a real estate agent who is knowledgeable about the location of the house and one who has experience in selling houses in the area. You can also find out the experience of recent clients of the real estate agent before entrusting the agent with your business.
Your real estate agent will have a list of homes in suitable neighborhoods that fit your budget. Before visiting and inspecting these homes keep a checklist of things to do while checking the house. If required take pictures of the home for future reference. Make sure you check the plumbing and electricity. Open and close windows and doors to make sure they work properly, check if the neighborhood makes you feel comfortable with well-maintained homes, street parking, not too much traffic and easy to reach places of interest like shopping, schools, public transportation and, restaurants. Once you find the best among the homes you have checked out, negotiate an offer with the help of your real estate agent. Once the seller agrees to your offer price, the transaction will go into escrow. Escrow is the time frame for completing all further home buying procedures. You will set the date for completion or closing the sale at this stage.
The next step is to ask your real estate agent to get an expert home inspector to perform a home inspection done. The home inspector should be certified by the ASHI- the American Society of Home Inspectors. You need to be present at the time of the inspection to understand the estimate arrived at by the inspector that you will need to spend on repairs. You can also negotiate with the seller to make the repairs before closing the sale. The home inspection is an important step in the home buying process because the inspection report can show up hidden flaws in the house and determine the actual value of the house.
Your Mortgage Loan
Find a mortgage loan that suits your unique needs. You can research loans online on websites that have tools that show you the best type of loan and the most affordable. You can enter your details on their online tool and find at least five loan options that suit your needs. Before using the tool make sure that you have a good credit score and check how much down payment you can offer. The higher your down payment, the lower your mortgage interest rate. You may qualify for a first home buyer special program in your state. These programs could give you a lower mortgage interest rate. Shop among at least five lenders before choosing a lender. However, it is important that you keep a sensible time frame and get a loan within the time frame so that you can start other procedures to buy your home.
Once you have got a mortgage loan, your lender will arrange an appraisal of the home by an independent appraiser. The appraiser will give an expert report so that the buyer, seller and, lender will know what the home is worth and whether a fair price is being paid. A good appraiser will be certified and approved by the state. An appraisal protects you from buying an overpriced house. The lender will also not be investing too much money in a property that is not worth the investment. An appraisal is not the same as a home inspection. An inspection will show up inherent defects in the property while an appraisal will determine the actual value of the house and market trends including the resale potential of the property. Lenders give money to home buyers based on the value determined by an appraisal.
The mortgage lender will hire a title company to make sure that the seller has the right to sell the property. A title search is an important step before buying a house because it helps prevent costly and unnecessary litigation in the event some person has a claim on the property. The title company will have researchers called examiners, abstractors or searchers who will search the history of the title of the property for the last 60 years. They will get the details from the Recorder’s office or the County Clerk’s office. They will check if the government has a claim on the property because of unpaid taxes or if there are other legal heirs who have a claim on the property or if a spouse or child has a claim on the property because of unpaid support.
The final step in buying a home is called the closing of the sale. At this time, you will need to sign all the papers and documents required to complete purchasing the home. Once the papers are given to the lender, the lender will fund the loan within two days. The lender will give the check to the seller. The seller will sign the deed over to you. The deed will be recorded in the office of the recorder. You will have to pay the fees of lawyers, the title company and real estate agents. The seller will then hand the keys of the house to you and your new home will finally belong to you.
Researching and understanding the process before embarking on the task of buying a house will make the procedure less intimidating.
Buying a house is an achievement to look forward to and with a little planning and a step by step approach, you may find the procedure enjoyable. If you have the funds, a sensible budget and a good credit score the process of buying a house will be an easy task. If you don’t, planning to buy a house will help you earn the money and improve your credit score to realize your dream. Once you have the funds and have found your dream home you need to go through a few regulatory procedures and the home will be yours.